Power Lunch - Apple’s EU Fine & Macy’s Takeover Offer 3/4/24

Episode Date: March 4, 2024

The European Union just slapped Apple with a nearly $2 billion fine. The commission said the tech giant has abusive rules for other music streaming providers. Shares are down 3% today, but it seems investors might be more concerned about Apple's perceived slow start to the AI race. We’ll have more on that. Plus, Macy’s stock is rallying 15% as Arkhouse Management and Brigade Capital raise their offer for the company to $24/share from $21/share. The retailer confirmed it received the offer and said its board will review it. We’ll discuss what happens next and why one analyst is downgrading the stock today.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch alongside Courtney Reagan. I'm Dominic Chu. Markets right now are lower across the board. You can see right there the down industrial is down roughly one quarter of 1%. 95 points 38,999.991. The S&P pretty much flat on the session, 5135, the last trade there. The NASDAQ composite off one quarter of 1% as well to 16,241. Apple is a big drag on the averages today, especially with the NASDAQ. the company hit with a nearly $2 billion fine by the European Commission, the EC, said that Apple has abusive rules for other streaming music providers, but maybe of bigger concern for investors as the company's perceived slower start to the AI race. We've got much more on that story, Courtney, coming up. Yeah, but Dom, first we're going to start with Macy's. That stock rallying 15% today as Arquehouse and Brigade Capital raised their offer for the company at $24 a share from $21.

bucks. Macy's confirms it has received the offer and its board will review it as they did previously. Joining us now for more on the story, Gabrielle Kahane, managing partner at Arkhouse and our own Leslie, our own Leslie, why don't you kick this one off for us? All right, Courtney, thank you so much and thank you, Gabrielle, for being here. So the big news is that you bumped up to a 51% premium to the unaffected stock price from a few months ago, but shares still trading about three and a half dollars below that price tag. You said in an earlier release that the board was unwilling to engage due to a lack of confidence surrounding financing as well as the purchase price. And I'm wondering if you believe that this newest offer as well as any developments on

financing have closed the gap there. Yeah. So firstly, thank you so much for having me. Leslie, Courtney, good to see both. The company said that they were unwilling to engage with us on financing I don't know if that's the real reason or not. We can only guess as to the specific reasons that they weren't engaging. In fact, in previous conversations with them with respect to financing, they made it very clear to us that they didn't have any additional questions on our financing. And we hope that the additional information that we've given them, you know, notwithstanding their lack of specific requests, has put to the side any questions. now, but to the extent they have any additional questions, we urge them as we have previously to please let us know specifically what they would like for us to address. With respect to price,

as we stated then when we initially made the offer, we had a high degree of confidence and optimism that we could increase our offer if we were granted access to confirmatory diligence. The company was unwilling to provide us with access to said diligence, but they did really least Q4 earnings, and that gave us more information, allowing us to drop some of our conservative assumptions in our underwriting and in turn increase our price to now $24 in cash. Macy's, for its part, said in a statement that it does not intend to comment further on the Arkhouse and Brigades revised unsolicited non-binding proposal until the board has completed its review. But kind of going into the financing, you say that Fortress and One I.M.

have joined as equity capital partners for 50% of the financing. You say you have that, but what about the rest in terms of presumably debt financing that you'll need to get to this purchase price? And how does the $24 a share change the dynamic as it pertains to this financing? Yeah, so the debt for this transaction is at a relatively low conservative level of 50%. I think for historic comparable transactions, that is, you know, much less financing than typical. And we're pleased that we can, you know, kind of give that certainty to shareholders.

The debt is coming from money-center banks, a number of whom have expressed very strong interest in getting diligence alongside us and moving towards firm commitments and closing with us. With respect to how 24 changes that financing, as mentioned, our ability to come up in our offer was really driven by us being able to shed some of our very conservative assumptions in our underwriting. Gabrielle, obviously you mentioned that we now know a little bit more about Macy's financial position, given that they did just put out their earnings. But I know a lot of part of the value that you've seen in the retailer when we've spoken previously does have to do with the real estate.

As part of the announcement and the strategy under new CEO, Tony Spring, going forward, they do intend to close about 150 of their stores. That's about 30% of their fleet. So how does that change, if at all, your thesis about the value of the real estate? Well, hopefully not at all. Hopefully we get to close on this transaction and to give shareholders that premium long before, you know, the company under its existing leadership moves to close stores. Our plan is not conditioned on store closures.

It is not a part fundamentally of our business plan at all. In fact, we think the real estate is so valuable in large part because it's occupied by Macy's. So then I guess another question, too, is do you really want to run Macy's if you were successful? Would you continue to run it as a retailer? Or would you just try to sell off that real estate and get the value therein? So very much, we want to continue running the company. And again, the value of the real estate is really fundamentally driven by its great tenants, which we think can be that much more creditworthy under new leadership.

So the two are sort of fundamentally enmeshed with each other. There is a very commensalistic relationship between the real estate and the retailer that sits in it. And we think the real estate can become that much more valuable by putting on these, you know, necessary changes on an operational level post privatization in the private markets as compared to trying to execute on really fundamental business changes in the public markets where it's much more difficult to. And Gabrielle, it's, Dom, I wonder just if you could take us through what you think Macy's slash Bloomingdale slash the entire portfolio looks like operationally after you've

hypothetically done this deal three to five years. years from now. Hopefully a whole heck of a lot stronger. You know, our, again, sincere hope is that this is not a sort of going concern for shareholders, but very much Macy's is a, you know, stable and growing company that can live for decades and, you know, potentially another 150 years. So we think that needs to happen, you know, behind the curtain away from, the public markets, we think that current management has really been largely solving for the quarter. And when you're so focused on sort of that near-term execution, it's really almost impossible to ensure your long-term viability. Garreal Kahane, Leslie Picker, thank you both very

much for joining us. I'm sure we will be covering this more as things get underway for the way. Thank you. Well, Macy's also getting an analyst downgrade from T.D. Cowan saying prudent, bold new changes will take time to drive upside to guidance. So let's bring in the analysts behind the call. Joining us now is Oliver Chen, senior retail analyst with TD Cowan. Oliver, thank you so much for joining us. Obviously, we just wrapped up this segment. I don't believe that you can comment on it, but just in case you've changed your mind, do you have anything to say about this offer that has driven up the stock price for Macy's? Yeah, Courtney, we've always known that Macy's has substantial real estate value. As much as $7 billion or more, that's $25 per share.

However, it'll take a while to monetize it. And as you mentioned, Courtney, the company is engaged in a multi-year plan to monetize $600 million plus. So it's something that we're watching. We did choose to move to the sidelines on our rating. We think these are very good, bold, new choices in terms of store closures as well as changing apparel and digital. But it'll take time. And as you know, department stores need to attract younger customers. So lots of opportunity ahead. We're excited to watch it. But the bottom line is that we don't see earnings going up beyond their guidance level.

And we're in a good consumer environment. And it's been tough for this company to grow since 2022. Oliver, it's Dom. Let's take the buyout and put it in a vacuum, Macy's without the buyout. What exactly then needs to happen for Macy's, and its properties. To make you say, you know what, things are getting better, we can feel more comfortable in the investment thesis around this.

Again, without the buyout even in play, what does Macy's need to do here? Yeah, Dom, this thesis for us is less is more, meaning less inventory, but the right inventory, fewer stores, but better stores. Also, service is so important in the stores. Many times you can't figure out where to check out or find the right level of service, ready to wear shoes need service. So product stores, those will be major focus areas for us to watch. And the new CEO, Tony Spring, comes from a merchandise background as well. He's energized about driving differentiation. And so we'll look forward to that. Critically, getting the younger customer

and holding on the older customers. And then bringing excitement to the product that people want. Lots of competition, ultra-fast fashion, off-price sector as well. Costco and Target have great apparel too. So Macy's has found itself in a very crowded market. Bottom line, you need a store experience that you want to go to. And Macy's has to stand for fashion and excitement. Oliver, this is sort of a two-part question. As I mentioned with Gavriel, obviously, the part of the plan going forward over the next three years

is to close about 150 of Macy's stores that they classify as underperforming. So the first part of the question, I guess, is what is the risk of potentially losing digital business in the zip codes where those stores are, because we know that often happens as consumers use both the online store and the in-person store as sort of this cohesive, coexisting company. So what's the risk of losing the digital business where you close the stores? And then if you look at a Macy's versus Coles, Coles has something like 1,100 stores, but yet their annual revenue is smaller. So do you need more stores? Do you need more stores? Do you need less stores?

How was Coles able to operate with 1100? And Macy's thinks it only needs about 350. Yeah, Courtney, you bring up great points. And what will happen is the organization needs to recapture these revenues when they choose to close stores. However, this was a problem in the past when they were engaged in closing stores and lost more digital revenue than they assumed. So what's different this time? They've used more data, more traffic data, more consumer studies. in terms of which stores they should close in each market area,

in each of these market areas, as stores already. Furthermore, Courtney, you and I have seen the small format. That's an opportunity, too. So part of that is why we move to the sidelines, the risk factor around recapturing sales when you close stores. Coles being off mall is in a stronger position because traffic has been much more robust off mall for Coles, and Coles has had very good success with Sephora and is on its way to improve product.

But both of them do have traffic issues and traffic's a big risk factor. It's something we'll watch. All right. Oliver Schen, with the trade on Macy's. Thank you very much, sir. We'll see you soon. My pleasure here. All right. Coming up on the show, the NASDAX slightly lower today, but it's still up nearly 4% just for the month. But one tech giant is not following those gains, and that's Apple. Down nearly 7% over that same period.

We'll dig into that story coming up. Next. Welcome back to Power Lunch. Shares of Apple are under pressure after the European Union hit the company with a fine of nearly $2 billion for antitrust violations over its music streaming apps. Apple said it plans to appeal that decision. Now, this comes as Apple CEO Tim Cook is also facing some heat from investors for lagging behind its peers when it comes to AI investing. Here to weigh in all of this is Gene Munster, managing partner at Deepwater Asset Management. Gene, thank you very much for joining us as always. We always turn to you. for all things Apple.

So take us through what exactly this all means for Apple and whether or not there is a bull case to be had at current levels for valuation. Well, what it means for Apple in the near term is investors are voting that they don't have confidence in Apple's AI strategy. And that's understandable, of course, because it's just been over the past couple months

that we've heard more about that. And ultimately, when you think about their AI strategy, it really comes down to how are they going to make money on this. And investors now are generally on the same page that this June at WWDC, we're going to see them come out with their first foundation model. As a reminder, this would compete with GPT. It would compete with Gemini, Anthropic, X.A.I. This is one of the kind of top four or five Lama from Meta. Really important that they have that.

So that's one piece. Coming out with that model still doesn't answer the fundamental question that investors are asking, again, which is what does this mean for the business? and I'm going to fill in some of those blanks, is that what it means for their business, of course they will use AI to make better predictive text and add kind of the fit and finish around their hardware and software, like some of the Macs that they've announced today. But more importantly, this is an opportunity that they come out with a subscription for personalized AI. And I think this is one of the big unlocks for consumer value in AI.

And essentially, it is a unique place that Apple has because of their role. with privacy and security and the trust that they have with consumers, people be willing to let Apple use their data opt in to allow these AI bots to do tasks for them. Contact your utility company, book a trip, compose emails. There's a lot that can be done. And when I think about that opportunity, it comes down to a subscription business. And if you look at their active install base of devices, that's something that they're really clear about. That's 2.2 billion growing about 8% a year, they don't give out the active user number. I estimate that that's about 1.4 billion, but if 20% of that 1.4 billion would opt in for a $10 month personalized AI service,

so it's going to take a few years to get there, that would add over 15% to Apple's earnings. And so, Dom, when you put all this together, understandable investors' reaction, but I think investors are forgetting that there are 1. almost 5 billion people that live their lives throughout the day on Apple devices, that stickiness is a huge long-term opportunity for them to sell AI products into. Gene, I do have a question about this EU fine.

I understand it's $2 billion as of now, but that there's a high likelihood that Apple will appeal. Let's say worst-case scenario, it doesn't work. They have to pay the $2 billion fine. Was it worth it? I mean, Apple has a pretty big cash pile. Was it worth it for the business perhaps it did get? Even if it believes that it got it fair and square, you know, for the revenue that it has acquired in the EU?

So the $2 billion, I agree. I think it's probably going to be more like a billion after everything is said and done. It'll take a year. It's 3% of their cash at the $2 billion level. I think the bigger question for me is what impact is these type of fines going to have on Apple's app store revenue globally? And on their last earnings call, they talked about that the App Store in Europe was 7% of total App Store revenue. So that basically equates to a half a percent of Apple's overall revenue. So they knew that this was coming, these changes were coming, that this fine potentially was coming.

And they wanted to get in front of investors and remind them how small of a piece that this is. But it does not change. The bigger question is that there will be changes coming to Apple's App Store across the board. And this is probably 40% of Apple's earnings come from services more broadly. And so I think when I think about that dynamic, they'll eventually pay the fine and what it really sticks out. And I've been closely watching what's happened in Canada, the U.S., South Korea, Japan, the EU in terms of all these changes. Apple is really smart in terms of how they navigate this. They will go and make changes to accommodate the courts, but then they find ways to essentially charge the developers anyway.

And I suspect that that will frustrate and furiate some developers, but at the end of the day, they're building huge businesses off of Apple's backbone. And I think despite their frustrations, they will continue to pay. And Apple will actually maintain better economics for their App Store over the next five years than I think what investors are expecting. Gene, before we let's talk about the valuation right now. Apple is not participated. It's underperformed. What exactly gets people back into saying that Apple is the place we want to be? It's got to come down to growth. They've got to show something. They've got to show something in June that gets people excited that Apple understands the importance of this and that they just, they have to go beyond just talking about a foundational model and showing it. They've got to show investors that we can get growth going. They haven't grown over the past six quarters. That needs to change for the stock to start working, and I believe it will. Jean Munster, thank you very much for joining us on all things Apple. OPEC Plus extending its voluntary oil output cuts until mid-year.

gas climbing nearly 8%. Details further ahead. Welcome back to Power Lunch. Turning attention now to the bond market, which is its eyes focused on the strength of the economy and a rare treat. We actually get to talk about it with Rick Santelli, but not from the CME group or CBO or anywhere else in Chicago, but he's right here. Rick, it's so good to have you on set with us. I love visiting. It really is a great experience and everybody's so kind. I'll tell you, the bond market should have such good, friends. Because if you look at what's going on with bonds, to me, the story for 2024 is rates are high and they're going to stay high, in my opinion, despite all the other chatter.

Let's look at Atlanta GDP now. Now, maybe it doesn't always give you the exact right clues, but just in six days, it's gone from 212 to 3 in a quarter. That's a huge move since last Tuesday. And if you look at the five-year break-evens, Dom, they're hovering just under 2.4%. The highest level's going back to November. And the last thing is just a year to date of twos and tens. So we're hovering right now, whatever, 422 and a 10, around 4.61 and a two. These are still within 10 basis points of the highs of the year. So highs of the year, though, but in relative term, I mean, there's no doubt about it, those break evens, everyone else is pricing in, kind of like this stickier inflation story that we've gotten more data on in the last few months.

but it's still not like we're returning yet to the levels that we saw over the past two to three years with regard to real inflationary pressure. But that was only a short chapter and in tens we got up to $4.99 never closed above 5%. And I understand. So we're about three quarters of percent maybe away from that point. But when you think about all the moving parts here, I think to me what we're underestimating is the fact that just because it shot up to $4.99, the variables then were a scramble. okay, and it happened fast and it disappeared. But I think over time, we're going to do that move again, but we're not going to do it as a scramble.

We're going to do it as a slow, steady climb. And I think that the moving parts here are, we could talk about inflation moderating, but inflated prices aren't. And the public gets that better than anybody, and the public understands debt. Okay, so if that's the case, was it better, prices are high,

the prices are slowly moving higher. That's the whole idea. Right. The slowing moving higher. Would it be better or worse if we had outright deflation in terms of the economic picture? Because that would get our prices back to where they were, say, two years ago or three years ago. But is that what we want? Well, I think it's what everybody I talk to wants.

They want the 21% prices down that they were pre-COVID. But if you're a Fed or you own buildings or real estate, let's be honest here, that countries that have terrible debt problems always like inflation. The old saying was either grow your way out of it or inflate your way out of it because deflationary pressures in an over-debt burdened society never turn out well either. Hmm, very interesting stuff, Rick. Come back. Absolutely. Absolutely. We've got to see right here for you. Keep it warm.

For now, let's get over to Bertha Coombs for a CNBC news update. Hey, court. Former President Donald Trump held a press conference this afternoon to applaud the Supreme Court for ruling that he cannot be removed from state ballots. I think it will go a long way toward bringing our country together, which our country needs. The outcome ends efforts in Colorado, Illinois, Maine, and elsewhere to kick Trump off the ballot by claiming that he violated the 14th Amendment, leading up to the January 6th attack on the Capitol. The court ruled only Congress, not states, can invoke that provision. In a world first, France enshrined the right to abortion in its constitution today.

An overwhelming majority of lawmakers approved the measure in a special joint vote of the two houses of Parliament at the Palace of Versailles. And Philadelphia Star Center Jason Kelsey announcing his retirement from the NFL today after spending 13 seasons with the Eagles. The seven-time all-pro and Super Bowl champ shared the decision in an emotional press conference this afternoon following months of speculation about his next move. So I guess Mama Kelsey won't have to choose between the Eagles and the Chiefs anymore. I guess not. I guess not. She can load up on the red. Thank you very much, Bertha. I appreciate it. Well, as we had to break, a quick power check. On the positive side, HP, HPE, I should say, having its best day in about a year. On the negative side, though, TES down 6%. This due to some reports of a huge plunge in China shipments, that is your power check for Tesla and Hewlett-Packard Enterprises. We'll be right back. All right, welcome back to the show. The major averages are lower today after the NASDAQ and the S&P closed at record highs on Friday, but just marginally so. Our next guest sees a couple of bullish signs for the market, including projected double-digit earnings growth this year and a broadening of the market beyond just, of course, big technology. Stephanie Link is the chief investment strategist and portfolio manager at Hightower. She's also, of course, a CNBC contributor. Steph, thank you so much for being here with us. Let's talk about whether or not this story needs to see.

see broadening out or whether it could be just like last year when the mag seven did all the heavy lifting? Well, I hope it's not that last year. And I'm actually encouraged by what we've seen this year so far. We've had 16 of the last 18 weeks have been up. We haven't seen that, Dom, since 1971. I bet you weren't even born. So we are, though, seeing a difference in this year versus last year. This year, we are starting to see other parts of the market doing better. And it actually started in October, and then it continued in the beginning of the year, then it reversed. And then we saw a mag-7 again. So I think it's kind of healthy to see just this gradually happening.

So it's not over for tech. Oh, my goodness, look at the semiconductors every day. They go up. But it's also other areas. Like IWM was up 3% last week. Let's see if that continues. That's interesting. Crypto also very interesting to me.

Banks and in general financials, energies doing it, industrials. And so I think a lot of that, though, is because we have seen better economic data and the economically sensitive sectors should do well based on the better data. We're growing at about 3% in GDP. Consumption is about 3%. You're starting to see pockets of manufacturing do well from all the infrastructure spending. And so that kind of add it all up. And it's good for earnings overall, not just for tech, but for all these other sectors. Steph, so let's talk about what companies do benefit in that kind of environment. You mentioned a lot of potential catalyst, a lot of macro tailwinds. Where are the picks to be had out there, given that kind of a narrative, that kind of a story? Yeah, so within industrials, I am overweight industrials, and I own a ton of them.

But one that doesn't get talked a lot about, but it's a really well-run company, is Eaton Corp. And, of course, they're going to benefit from all this infrastructure spends, $2 trillion that we passed last year. that's actually flowing into this sector this year. They're electrical and energy efficiency. They make power better quality, better reliability. And what struck me as very interesting was that their orders went from 2% in the third quarter of last year to 7% in the fourth quarter. That's sequentially.

For a company of this size, that's huge. Margins also are poised to improve on better price mix and some restructuring initiatives as well. So not cheap, Dom, but I do like the theme, and I like this kind of. company. So I bought a little small piece of this, and I think we'll watch and see if it's weak to continue to add to it. By the way, Courtney, you know what else Eaton makes? What? Golf pride golf grips that a lot of people don't know. They do. Yes, they do. Oh, that is really interesting. Just saying. Stephanie, in sort of your opening comment there, you talked about cryptocurrency, and that sort of piqued my interest. I love your analysis.

I could be wrong, but I don't feel like you're often talking about cryptocurrency. We know the price A Bitcoin, of course, going up around 67,000. So if you're talking about crypto and if you are interested therein, are you talking about more of the new ETFs? Or how would you play that and why? I want to hear more. Well, no, I'm not investing in crypto, but it's just really more Courtney looking, just taking a step back and looking to see what's working. And it's risk on. That's working. And that tends to be crypto in general. I do think the reason why crypto has done so well is because of the ETFs and all of them out there now. It's so much easier to participate. And it's also a little less volatile than just buying Bitcoin or Coinbase or any other companies out there. And so it's a

very diversified way of doing it. And so that's what I think is fueling that move. But the move, along with small caps, along with other sectors beyond tech, I think that's just worth paying attention to. It just tells you that the factors of kind of risk on, a little bit more value, a little bit more broadening out, it is in fact occurring. Well, the most bullish analysts and strategist, Stephanie, that cover Wall Street, that lay out targets for the S&P 500, are basically putting the S&P 500, about maybe 3,400 points at the year end above where it is right now. It's not a lot, right? It implies a positive but relatively muted year. Is that what you expect? And is that a victory at this stage of a market?

Yeah, I mean, I think that if the overall market kind of just goes sideways to gradually up, let's remember, Dom, the long-term average of the S&P 500, the total return, the long-term average is 7.7%. So we're there right now in the S&P 500. So if we go up another 3-4%, that would not surprise me at all. I think we should, given, again, that's broadening out. But I do think these other sectors will be up more than the broader average. And so it's not, and it's, it is industrial, but I really like housing a lot. We've talked about this for a couple of years now, but I think this is their year for housing,

and so you want to have exposure there. And again, financials, if you can get financials to participate, it's a pretty big part of the market, and that would be encouraging too. So, Stephanie, we don't have time for both, but you did just mention housing and financials, and I knew you've given us two picks. So you get to pick, which one, and tell us why you like it. Well, I'll tell you, Masco, because I've already, we've pitched Schwab in the past, But Masco really quickly, housing, you know this from covering Home Depot and lows in that sector.

We are 14 million, five million homes short. We've underproduced for 14 years. We've got five million millennials, first-time buyers. These guys, actually, their assortment is the low end. Think plumbing, which is 60% of their exposure. And their business, one of their partners, channel partners is Home Depot. It's 38% of their mix. And so that's very encouraging because I like Home Depot, by the way, for the year.

And I also think that this company can do good, well, good job, a good job on margins. $5 of earnings power puts this at 15 times earnings. It's not expensive. All right. We're talking Delta Fossets and bare premium paints. Stephanie Ling, thank you very much. We'll see you soon. All right, coming up on the show, oil prices sliding as OPEC Plus extends voluntary output cuts until mid-year.

Our PIPA Stevens will join us and give us more details when Power Lunch returns after this. Welcome back to Power Lunch. Oil prices falling today, despite OPEC agreeing to extend production cuts. Let's bring in FIPA Stevens now with more. So this was announced yesterday, and the cuts we're talking about because there's been a lot. There's a quick refresher. These are the 2.2 million barrel per day production cuts that went into effect at the beginning of this year, and they were set to expire at the end of March.

But now these members, including Saudi Arabia, came out yesterday saying they're going to extend those through the end of June. Saudi Arabia is taking the lion's share of this at about 1 million barrels per day. So they're currently pumping about 9 million barrels per day, and they could be pumping 12. So they've taken about 3 million barrels per day off the market. Now, the other members here, of course, like Iraq, UAE, Kuwait, and Russia, who have also said they'll reduce their output. Now, the cut was largely priced into the market, which is why we're not seeing a response in the price of oil today. But what this does show, as Rysart Energy noted, is unity within the group. And that's important because we saw Angola leave the alliance at the end of last year.

They made that announcement. and it kind of felt like, you know, maybe there were some members that were upset with their production quotas. And so this shows that there still is some cohesion in the group. These are voluntary cuts, so there's no enforcement mechanism. But all these countries have taken it upon themselves to do something for the group. It also shows this kind of a, you know, defense of the $80 per barrel level. Now, one other thing, Nat gas is in the green today after EQT said its cutting output. They said they started the cuts at the end of February and will continue through March and then reassess

based on market conditions. Of course, Nat gas has been on a huge, massive decline you see there, a downturn, thanks to the warm temperatures we've seen with storage now at about 27% above the five-year average. Well, if we talk about the Nat Gas trade, the dynamic with regard to the administration's kind of restrictions, everything else on liquefied natural gas,

how much of that could be resolving itself one way or the other in the coming weeks and months, given what we're seeing in prices as low as they are right now? they haven't been this low in a long time. So that moved by the administration to pause pending approvals has no impact on our actual production right at this moment because it didn't have anything to do with the facilities that are already permanent and already beginning construction.

However, it does signal longer-term risk. You know, if you can't have guaranteed that these projects will actually be able to be built and get the required permits, then you're not going to say, okay, we're going to invest billions of dollars up front. But I think one other important thing on the LNG front, is that this coming wave has been a big thing that's been supporting the bullish narrative for NAC gas. And so far, these new facilities keep getting pushed out further and further. And for the time being, we've seen that producers have been reluctant to cut

because they want to be able to take advantage of this demand boom that so far has yet to be realized. All right, Pippa Stevens, with the latest on the energy trade. Thank you very much for that. Still ahead on the show, new competition is emerging in the weight loss drug space. Viking therapeutics, experimental treatment is now being hailed, quote-unquote, best in class on Wall Street. Our next guest will give us the skinny on that stock when power length returns after this. Welcome back. It's time for today's three-stock lunch and here with our trades is Jerry Castellini, the co-founder and co-CIO at Castellarck Management. Our first name is a stock that's taken the market and buy storm. I mean by storm. We're talking shares of super micro-computer.

They're up nearly 100% over the past month and shares are hitting an all-time high today. on news that the company is going to be joining the S&P 500. But Jerry, your company just entered a selling program on that stock. Why is that? It's, by the way, up about 1,000 percent over the last 12 months. Yeah. Most professional investors will take profits, will pair positions back as the sizing of them increase.

And it's a risk management tool, and we do it. And we think it's really, really important. This has become our largest holding in our small cap portfolio. And quite frankly, if you look at it and compare it to maybe a Dell at one end or an Nvidia at the other end, they do more low margin type of things with respect to putting and assembling big data center equipment, they don't have the intellectual property of say an invidia. So in our case, we're taking profits.

We're selling today, not selling the whole position, but moving it back to the position size as it was, say, you know, a few months ago before it had this run. Our next topic stock is another name that's going to be joining the S&P 500 index. Decker's Outdoor. This is the company behind Uggs. Jerry, what's your trade? And do you have any? They're so cozy. Yeah, I know. I mean, who would have thought, who would have thought that Ug would be multicolored or that it would be in the sandal business? You know, it's a really smart brand extension strategy on these guys.

part and it seems like consumers are taking up very, very well. If you combine that with this crazy new shoe that you probably have a pair of that running around, it's a neat combination for a shoemaker. And it really, when you compare it to a Nike who's being threatened by different international and trade issues, and you say, here's this direct play on the US consumer right now in the exact areas that we seem to see a lot of popularity. A lot of folks want to do both of these things more of, more comfortable shoes outside and more athleisure, if you will. So the combination is a pretty powerful one.

And while it's expensive, you know, we would buy any pullback on it here. So we would hold it here. All right, Decker's big names and brands for footwear out there. Our final stock is Viking Therapeutics. Now, CNBC published an article on Sunday, stating that the company is emerging as a strong weight-loss drug player, and the shares are jumping higher in response to that. The stock is up, by the way, almost 300% over the course of the past month. Jerry, does Viking therapeutics have more room to run in this total addressable market story for weight-loss drugs? Yeah, if I could just pause for a second to, guys, when you think about it, we're talking today about a conventional.

consumer products company, a drug company, and when you think about a tech company, and you think about all three of these companies being dominant, big movers in a market, when was the last time we could sit on a session like this and talk about three completely different industries that wasn't overwhelmed by technology? It's a state where investors are today and why you should think very, very closely about the types of names you use, because this is an example. Viking is now, chasing Lily, something you wouldn't have expected it to do six months ago. And here they are with a viable third product into the big GLP1 market. Why not? This company won't go down significantly because a Pfizer and a Merck will need to buy them at some point.

I'm sorry. I just think that's interesting. Yeah, I mean these GLP-1s, think back to the statin market in the late 80s and early 90s, There was multiple competitors, multiple different compounds, all pretty much successful. But then Warner Lambert comes out with the Lipitor and Pfizer just has to buy them. And now you have the potential here for this being the case. And we don't even know how big this market will be. So you probably should just buy this and feel comfortable that it won't have the downside risk of a lot of these other high flowers. Wow, but it is already up a 400% year-to-date, so that's also of note.

Jerry Castley, thank you so much for being here with us. I appreciate it. You got it. All right, well, still ahead on the show, the White House just wrapped up a roundtable discussion on drug price reform, speaking of. Our Morgan Brennan will give us the key highlights, including some reaction from attendee Mark Cuban. Our lunch is back in two. The White House today hosting a roundtable on health care costs, specifically the role of middlemen, pharmacy benefit, managers and their impact on drug prices.

Mark Cuban, among the attendees on our Morgan Brennan, spoke with him a short time ago. He has a very interesting company, and Morgan joins us now. He has a very interesting company, and he is very plain spoken in terms of his message. So I did just speak with billionaire investor Mark Cuban. His cost plus drug startup offers 2,500 generic medications in its online pharmacy. It works with companies, insurers, patients directly. Cuban participated in this White House roundtable today, and his message was the big three pharmacy benefit managers are driving.

drug prices higher, but he says there's nothing unique about them. And let me just tell you to speak directly to the CEOs. Those rebates that you're getting from the PBMs, they're not paid for by the manufacturers like they're telling you. The rebates that you're getting are paid for by your sickest employees and your oldest employees. So those rebates could be used to pay for those employees' medications and care or pay for the chronic illnesses they have to pay for the medications every single month.

But instead, you're putting those on your balance. sheet, that will backfire for you. Go to a smaller PBM that doesn't do rebates. Go to costplusdrugs.com, compare your prices. Go to your insurance company and tell them you want to take, you know, Yucimri instead of Humair. If you're a company with, you know, a thousand employees, just switching one drug from Humira to Yucimery can save you hundreds of thousands, if not millions of dollars. So for the White House, this meeting coming as it plans to announce a new federal task force, focused on easing health care costs, key election topic. And one expected to come up Thursday night in the president's state of the union address. But for more on

the interview with Cuban, tune into closing bell overtime where we dive deeper into drug pricing and production plus other topics like AI, crypto, and more. Guys, they're opening up their own manufacturing line this week as well to sort of speak to some of these generic drug shortages that we've been talking about for years now. They being cost plus drugs. Yes. Very interesting. And obviously right now they really focus on the generic drug. So it's not everything that you can need. But if you go into the website and you search, there are a lot of of options. You don't need insurance. But it covers the vast majority of the most popular drugs that are consumed in America right now. Absolutely. That's the whole point. Exactly. That's the

point. And it's a different model than what you see sort of currently playing out more broadly, right? It's this idea of offering the drugs at manufacturing cost plus a 15% markup, plus the fee associated with either filling that drug prescription in a pharmacy or to ship it to you. So it's a very different business model. But one that certainly speaks to the disruption that we're starting to play out in health care with the likes of others like Amazon and et cetera. Everybody's sort of trying to crack the code on that business model that the PBMs have been so linked to for so long. I like more of the transparency about drug prices that the model has sort of started to educate

the market on. I think that's valuable too. Morgan, thank you so much. Great stuff. We'll look for more of it on your show later today. Let's take a look at what's going on with the markets here with just about an hour left to trade. Let's see where the major indices are as they were lower,

across the board when we started the show, but perhaps things have started to turn around here. Dow was just about flat. You're right, just 22 points, 23 points here. So we'll see where we get to go. All right. The most important hour of trading coming up, right? Absolutely. All right, guys, thank you very much for watching.

Power lunch as always.